DCIT 1(3), MUMBAI V. SMMS INVESTMENTS P.TLD, MUMBAI

ITA 1889/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0500 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 01-03-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 20-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SINGLA
• Keywords: Earning of tax free income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G , MUMBAI BEFORE S HRI G.S. PANNU (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 1889 /MUM/20 1 4 ASSESSMENT YEAR: 2007 - 08 THE DCIT 1 (3), ROOM NO. 564, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S SMMS INVESTMENTS PVT. LTD., 201, NARIMAN CHAMBERS, C - 32, G BLOCK, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI - 400051 PAN: AAKCS0549K (APPELLANT) (RESPONDENT) APPELLANT BY : M S. ANUPAMA SINGLA (DR) RESPONDENT BY : SHRI M.P. LOHIA (A R) DATE OF HEARING: 01/03 /201 7 DATE OF PRONOUNCEMENT: 31 / 0 5 /201 7 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST ORDER DATED 12/12/2013 PASSED BY THE LD. C IT (APPEALS) - 7 , MUMBAI , FOR THE A S S ESSMENT YEAR 2007 - 08 , WHEREBY THE LD. CIT (A) HAS ALLOWED THE APPEAL FILED BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT,1961(FOR SHORT THE ACT) . 2. BRIEF FACTS LEADING TO THIS AP PEAL ARE THAT THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR DECLARING NIL INCOME. THE CASE WAS SELECTED FOR SCRUTINY. IT WAS NOTICED THAT THE ASSESSEE HAD RECEIVED INTEREST INCOME OF RS.47,28,005/ - AND OFFERED THE SAME AS INCOME FROM OTHER 2 ITA NO. 1 889/MUM/2014 ASSESSMENT YEAR: 2007 - 08 SOURCES, HOWEVER, CLAIMED DEDUCTION U/S 57 OF THE ACT. THE ASSESSEE WAS ACCORDINGLY ASKED TO ESTABLISH THAT THE INTEREST EXPENDITURE WAS INCURRED FOR THE PURPOSE OF EARNING INTEREST INCOME. IN REPLY, THE ASSESSEE SUBMITTED THAT THE LOANS WERE OBTAINED BEFORE MAKING FIXED DEPOSITS THEREFORE THE NEXUS HAS BEEN PROVED. THE AO REJECTING THE CONTENTION OF THE ASSESSEE DISALLOWED THE DEDUCTION AND ADDED THE SAID AMOUNT TO THE INCOME OF THE ASSESSEE. THE ASSESSEE CHALLENGED THE ASSESSMENT IN FIRS T APPEAL BEFORE THE CIT(A). THE LD. CIT(A) AFTER HEARING THE ASSESSEE ALLOWED THE APPEAL OF THE ASSESSEE AND DELETED THE ADDITION MADE BY THE AO. 3 . AGGRIEVED BY THE ORDER OF LD. CIT (APPEAL S ), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE US ON THE FOLLO WING EFFECTIVE GROUNDS: - 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE OF INTEREST EXPENSES CLAIMED U/S 57 EVEN THOUGH THE EXPENDITURE HAS NOT BEEN WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF EARNING INTEREST. 4. BEFORE US THE LD. DEPARTMENTAL REPRESENTATIVE (DR) RELYING ON THE ASSESSMENT ORDER SUBMITTED THAT SINCE THE ASSESSEE HAS FAILED TO ESTABLISH THAT THE EXPENDITURE HAS BEEN INCURRED EXCLUSIVELY FOR THE PURPOSES OF EARNING INTEREST, THE LD. CIT(A) OUGHT TO HAVE CONFIRMED THE DISALLOWANCE MADE BY THE AO. THE LD. DR FURTHER SUBMITTED THAT THE IMPUGNED ORDER IS LIABLE TO BE SET ASIDE. 5. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE RELYING ON THE FINDINGS OF THE LD. CIT(A), SUBMITTED THAT THE FUNDS WERE BORROWED FOR THE PURPOSE OF INVESTING IN THE SHARES OF OMEGA. A PART OF THE LOAN FUNDS WAS KEPT AS FIXED DEPOSIT WITH THE BANK ON WHICH INTEREST INCOME WAS EARNED. THE INTEREST ON LOAN IS AN EXPENDITURE INCURRED W HOLLY AND EXCLUSIVELY FOR THE 3 ITA NO. 1 889/MUM/2014 ASSESSMENT YEAR: 2007 - 08 PURPOSE OF EARNING EXEMPT INCOME. SINCE, ALL THE CONDITIONS OF SECTION 57 (III) OF THE ACT ARE SATISFIED, THE LD. CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE MADE BY THE AO. THEREFORE, THERE IS NO MERIT IN THE APPEAL OF THE RE VENUE AND THE SAME IS LIABLE TO BE DISMISSED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACTS WHICH EMERGE FROM THE RECORD AND PLEADINGS OF THE PARTIES ARE THAT DURING THE AY 2007 - 08 THE ASSESSEE EARNED IN TEREST INCOME OF RS.47,28,005/ - . ON THE OTHER HAND , THE ASSESSEE INCURRED INTEREST EXPENDITURE OF RS. 68,92,33,753/ - ON BORROWED FUNDS AND ALSO INCURRED AN EXPENSES OF RS. 1,34,68,800/ - TOWARDS FINANCE CHARGES. APART FROM RAISING 2 CRORE BY WAY OF EQUITY S HARE CAPITAL AND RS. 48 CRORE BY WAY OF PREFERENCE SHARE CAPITAL, THE ASSESSEE RAISED A LOAN OF RS. 810 CRORE FROM DSP MERRILL LYNCH CAPITAL LTD. AND RS. 190 CRORE FROM INFRASTRUCTURE DEVELOPMENT FINANCE LTD. DURING THE FY RELEVANT TO THE ASSESSMENT YEAR U NDER CONSIDERATION, I.E., THE ASSESSEE UTILIZED RS. 1032 CRORE FOR INVESTING IN EQUITY SHARES IN OMEGA TELECOM HOUSING LTD. BOTH THE SHARE CAPITAL AND L OAN FUNDS WERE DEPOSITED IN A COMMON BANK ACCOUNT. THE LOAN FUNDS WERE RECEIVED BY THE ASSESSEE PRIOR TO THE DATE OF FIRST DEPOSIT WITH THE BANK. THE LD. CIT (A) HAS DELETED THE DISALLOWANCE MADE BY THE AO HOLDING AS UNDER: THUS THE TOTAL FUNDS AVAILABLE WITH THE APPELLANT WERE RS. 1050 CRORES. THE INVESTMENTS IN SHARES WERE RS. 1032 CRORES. THE BALANCE WA S RS. 18 CRORES. THE INTEREST EXPENDITURE WAS RS. 68.92 CRORES. THE INTEREST EXPENSES TOWARDS INVESTMENT IN SHARES COMES TO RS. 67.74 CRORES. THE INTEREST EXPENSES TOWARDS INVESTMENTS IN FD AMOUNTS TO RS. 1.18 CRORES. AS MENTIONED HEREINABOVE THE FUNDS RA ISED BY THE APPELLANT BY WAY OF SHARE CAPITAL AND LOAN DURING FY. 2006 - 07 WERE RECEIVED BY IT IN A COMMON BANK ACCOUNT. IT IS ALSO SEEN THAT FROM THIS BANK ACCOUNT, AMOUNTS WERE UTILIZED BOTH FOR MAKING INVESTMENTS AS WELL AS FOR 4 ITA NO. 1 889/MUM/2014 ASSESSMENT YEAR: 2007 - 08 PLACING FIXED DEPOSITS WIT H BANKS. THE HONBLE ITAT DELHI IN THE CASE OF MARNITE POLYCAST LTD. VS. ACIT (1995) 53 ITD 345 HAS HELD THAT WHERE THERE IS A MIXED POOL OF UNDS, THE FUNDS SHOULD BE APPROPRIATED IN THE MANNER MOST BENEFICIAL TO THE ASSESSEE. THE HONBLE TRIBUNAL HAS MAD E REFERENCE TO THE DECISION IN THE CASE OF INDIAN EXPLOSIVES LTD. VS. CIT (1984) 147 ITR 392 (CALL) AND ALKALI & CHEMICALS CORPORATION OF INDIA LTV VS. CIT (1986) 161 ITR 820 (CALL). IN VIEW OF THE ABOVE, THE APPELLANT HAS RIGHTLY CLAIMED THE DEDUCTION IN RESPECT OF INTEREST EXPENSES TO THE EXTENT OF RS. 47,28,005/ - AGAINST THE BANK INTEREST INCOME OF RS. 47,28,005/ - . THEREFORE THE DISALLOWANCE OF RS. 47,28,005/ - MADE BY THE AO IS DELETED. 7. IN OUR CONSIDERED OPINION SINCE THE ASSESSEE HAS FULFILLE D ALL THE CONDITIONS TO CLAIM DEDUCTION U/S 57 OF THE ACT THE LD. CIT (A) HAS RIGHTLY DELETED THE DISALLOWANCE MADE BY THE AO. THEREFORE , WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (A) TO INTERFERE WITH. ACCORDINGLY, WE DISMISS THE SOLE GROUN D OF APPEAL OF THE REVENUE AND UPHOLD THE IMPUGNED ORDER PASSED BY THE LD. CIT(A). IN THE RESULT, APPEAL FILED BY THE REVENUE FOR A SSESSMENT YEAR 2007 - 2008 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MAY , 2017 . SD/ - SD/ - ( G.S. PANNU ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 31 / 0 5 / 2017 ALINDRA, PS 5 ITA NO. 1 889/MUM/2014 ASSESSMENT YEAR: 2007 - 08 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT (A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI